Exchange Traded Interest Rate Options
22 questions. Each answer is explained.
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Learn these topics
More units in NISM Series IV
- Introduction to Interest Rate, Interest Rate Instruments and Fixed Income Market30
- Interest Rate Derivatives10
- Exchange Traded Interest Rate Futures20
- Strategies Using Exchange Traded Interest Rate Futures and Options24
- Trading Mechanism in Exchange Traded Interest Rate Derivatives10
- Clearing, Settlement and Risk Management of Interest Rate Derivatives16
- Regulatory Framework for Interest Rate Derivatives8
- Accounting and Taxation of Interest Rate Derivatives4
- Code of Conduct and Investor Protection Measures in Interest Rate Derivatives6
Exam format
| Questions | 100 · 1 mark each |
|---|---|
| Duration | 120 min · 2 hours |
| Pass mark | 60% · 60 of 100 marks |
| Negative marking | 25% · 0.25 marks off per wrong answer |
| Certificate validity | 3 years · from the date of the examination |
| Marks for this unit | Not published by NISM |
NISM Series IV Interest Rate Derivatives
Exam rules read on NISM's site on 3 October 2026. Check the current rules on NISM's site (opens in a new tab)
What these answers assume, and when it was last checked
Each question uses the rules listed below. We last checked them on 5 September 2026. A Budget or SEBI circular can change a rate, lot size or expiry day. If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.
- NSE uses Tuesday expiry and BSE uses Thursday expiry. This applies from 1 September 2025.
- The January 2026 index lot sizes are NIFTY 65, BANKNIFTY 30, FINNIFTY 60, MIDCPNIFTY 120 and NIFTYNXT50 25.
- The October 2024 SEBI framework sets a minimum index contract value of Rs 15–20 lakh. Each exchange may list one weekly benchmark index.
- Option buyers pay the premium upfront from 1 February 2025. A short index option has an extra 2% Extreme Loss Margin on expiry day from 20 November 2024.
- Equity short-term capital gains are taxed at 20%. Long-term gains are taxed at 12.5% above Rs 1.25 lakh. Both rates apply from 23 July 2024.
- F&O income is non-speculative business income in ITR-3. NSE equity derivatives trade from 9:15 a.m. to 3:40 p.m.
- The final ten-minute session began on 3 August 2026. It aligns with the cash market Closing Auction Session.
- Most Securities Transaction Tax questions test the base and who pays. On an option sale, it is the premium and the seller pays. On a futures sale, it is the traded value and the seller pays.
- On exercise, Securities Transaction Tax uses intrinsic value: settlement price minus strike price. The buyer pays it.
- Two questions test the current rate. From 1 April 2026, option sales carry 0.15% on the premium and futures sales carry 0.05% on traded price. The earlier rates were 0.10% and 0.02% from 1 October 2024.
- This section uses the T+1 rolling settlement cycle. Obligations are fixed on T+1. A short delivery goes to buy-in auction on T+1 and settles on T+2.
- The trade-for-trade surveillance segment uses direct close-out. Funds pay in by 10:30 a.m. and pay out on or after 1:30 p.m. on settlement day.
- Securities pay in to the settlement pool by 10:30 a.m. They pay out directly to the client’s demat account by 3:30 p.m.
- The 3:30 p.m. deadline replaced 1:30 p.m. under SEBI’s 10 October 2024 circular. Direct client credit was required by SEBI’s 5 June 2024 circular.
- The optional T+0 cycle trades until 1:30 p.m. Obligations are fixed by 2:30 p.m. on the trade day. An early pay-in shortage is closed out directly.
- Cash-market Value at Risk margin is six times exponentially weighted moving-average volatility. It has a 9% floor for Group I, a 21.5% floor for Group II, and a fixed 50% or 75% level for Group III.
- Extreme Loss Margin is 3.5% for a share and 2% for a broad-market-index exchange traded fund. Mark-to-market margin is collected before the next day’s trading. The trade-for-trade segment has 100% upfront margin.
- Close-out uses the higher of the highest price from trade day to auction day and 20% above the auction day’s official close.
- A funds shortage costs 0.07% a day. The trading facility is withdrawn at a shortage of Rs 5 lakh or more.
- SCORES allows 21 calendar days, then two 15-day review levels. Online Dispute Resolution moves from conciliation to arbitration after the market participant and SCORES steps.
- At NSE, the Investor Protection Fund limit is Rs 35 lakh per investor for each defaulting or expelled member. This applies to claims arising after 13 August 2024.
- A Basic Services Demat Account has no annual maintenance charge up to Rs 4 lakh of holdings. It costs up to Rs 100 above that, until the Rs 10 lakh eligibility ceiling. These slabs apply from 1 September 2024.
- The rupee pairs are USD-INR, EUR-INR, GBP-INR and JPY-INR. The cross-currency pairs are EUR-USD, GBP-USD and USD-JPY.
- Each contract covers 1,000 units of the foreign currency, except JPY-INR. JPY-INR covers 100,000 yen and is quoted in rupees per 100 yen.
- The tick is 0.25 paise, or Rs 0.0025. It equals Rs 2.50 a contract.
- Rupee pairs trade from 9:00 a.m. to 5:00 p.m. A monthly contract stops trading at 12:30 p.m. two working days before the expiry month’s last business day.
- Final settlement is in cash at the FBIL reference rate on expiry day. FBIL, Financial Benchmarks India, has published this rate in place of the Reserve Bank since 2018. Premium-style European options are quoted in rupees. The buyer pays the premium in cash on T+1.
- Daily settlement is on T+1 and final settlement is on T+2.
- NSE Clearing circular 026/2020 sets SPAN margin plus Extreme Loss Margin. The futures margin is 0.50% for USD-INR, 0.15% for EUR-INR, 0.25% for GBP-INR and 0.35% for JPY-INR. A short option has 0.75%. These figures apply from 1 June 2020.
- A USD-INR client may hold 6% of total open interest or USD 20 million, whichever is higher. A trading member may hold 15% or USD 100 million.
- A resident user has one USD 100 million equivalent limit across all rupee pairs and exchanges. No document is needed below that limit, but a valid underlying contracted exposure must still exist. This clarification applies from 3 May 2024.
- The currency segment has no Securities Transaction Tax.
The exam figures (questions, time, pass mark, negative marking and certificate validity) come from NISM's own pages, read on 3 October 2026. Timed practice uses the same figures. Study with the official workbook as well.
The written-out answers on this page are hidden while your timed set runs.
All 22 questions on Exchange Traded Interest Rate Options, with answers
Q1A European put is written on a government bond’s price with strike 100. What right does the put buyer obtain under the contract’s exercise and settlement terms?
Option A. The right to buy the bond at 100 at expiry, whatever its market price is then
Why it is wrong: That is a call’s price-underlying right.
Option B. The right to sell the bond at 100, or receive the matching cash exercise value — Correct answer
Option C. The right to receive every coupon paid by the bond before the option expires
Why it is wrong: Owning an option alone is not ownership of the underlying bond.
Option D. The obligation to buy the bond at 100 on any day the put writer chooses to ask
Why it is wrong: That reverses the buyer/writer relationship and the put direction.
Answer: B. A put gives its holder a sale right at the strike, or the equivalent cash payoff for a cash-settled contract. For a bond-price put, intrinsic value at expiry is max(strike − bond price, 0). The premium purchases that right. It is separate from the exercise value. Remember: A put’s direction is determined by the specified underlying price.
Hint, shown before you answer in practice mode: Common mistake: Mixing option ownership with ownership of the referenced bond.
IV-061easyconceptual
Q2An exchange-traded bond option is European style. Which statement is correct?
Option A. Exercise is allowed only at expiry, but the option may be sold before then if trading allows — Correct answer
Option B. The buyer is forbidden from selling the option to anyone else before it expires
Why it is wrong: European exercise does not by itself prohibit secondary-market trading.
Option C. The buyer may exercise on any business day before expiry, at a time of the buyer’s choosing
Why it is wrong: That describes American-style exercise, not European exercise.
Option D. The writer may choose the buyer’s exercise date independently, as long as it is before expiry
Why it is wrong: The contract’s exercise terms govern the right, not the writer’s discretion.
Answer: A. European describes when an option may be exercised. It does not mean the holder must keep the position until expiry: an offsetting sale may close it earlier if the market allows execution. Trading liquidity and exercise style must therefore be analysed separately. Remember: Exercise, closing a position and expiry are not interchangeable concepts.
Hint, shown before you answer in practice mode: Common mistake: Treating European style as a prohibition on selling the option.
IV-062mediumconceptual
Q3A bond-price call has strike 101 and the underlying bond price is 102. The buyer originally paid premium 1.50. How is the call classified by moneyness?
Option A. Out of the money because intrinsic value is below the premium paid
Why it is wrong: That concerns net profitability, not the price-versus-strike classification.
Option B. At the money because total cost is close to the bond price
Why it is wrong: At-the-money status compares underlying and strike, not a constructed total cost.
Option C. Moneyness cannot be assessed until the buyer sells it
Why it is wrong: Current underlying price and strike are sufficient for the classification.
Option D. In the money — Correct answer
Answer: D. The call’s intrinsic value is 102 − 101 = 1, so it is in the money. If these were expiry values, the buyer would still lose 0.50 after the 1.50 premium. An option can be in the money without its buyer earning a net profit. Remember: Moneyness describes intrinsic value, not the owner’s realised profitability.
Hint, shown before you answer in practice mode: Common mistake: Including the original premium in the moneyness test.
IV-063easyconceptual
Q4A bond trades at 99.20. A put with strike 100 has a premium of 1.10 per unit. Its intrinsic value and residual time value are:
Option A. 0.80 and 0.30 — Correct answer
Option B. 0.00 and 1.10
Why it is wrong: The put is in the money because strike exceeds underlying price.
Option C. 0.30 and 0.80
Why it is wrong: This reverses intrinsic and residual time value.
Option D. 1.10 and 0.00
Why it is wrong: This assumes the entire premium equals immediate exercise value.
Answer: A. Put intrinsic value = max(K − S, 0) = 0.80. Residual time value = premium − intrinsic = 1.10 − 0.80 = 0.30. Time value reflects the value of future possibilities and other model inputs before expiry. It is not an additional exercise receipt on top of the full premium. Remember: Decompose premium into intrinsic value and the residual rather than double-counting them.
Hint, shown before you answer in practice mode: Common mistake: Assuming an in-the-money option has no time value.
IV-064mediumnumerical
Q5A bond-price call has strike 100 and premium 0.60 per unit. The expiry settlement price is 101.40 and the contract multiplier is 2,000. Ignoring costs, what is the buyer’s net profit on one contract?
Option A. ₹1,600 — Correct answer
Option B. ₹2,800
Why it is wrong: This is the exercise receipt before deducting the premium.
Option C. ₹1,200
Why it is wrong: This is the premium paid, not the net profit.
Option D. A loss of ₹1,600
Why it is wrong: The exercise receipt exceeds the initial premium, producing a gain.
Answer: A. Call exercise payoff = max(101.40 − 100, 0) × 2,000 = ₹2,800. Premium outflow = 0.60 × 2,000 = ₹1,200. Net profit = ₹1,600. Premium financing and transaction charges are excluded explicitly, so they must not be invented in the calculation. Remember: An option payoff is not the same as profit after premium.
Hint, shown before you answer in practice mode: Common mistake: Reporting gross exercise proceeds as the buyer’s net gain.
IV-065mediumnumerical
Q6A writer sells a bond-price put with strike 100 and receives premium 0.90 per unit. The bond settles at 98 at expiry. What is the writer’s net result per unit, excluding costs?
Option A. A loss of 2.00
Why it is wrong: This ignores the premium already received.
Option B. A loss of 1.10 — Correct answer
Option C. A gain of 0.90
Why it is wrong: This ignores the in-the-money put obligation.
Option D. A gain of 2.90
Why it is wrong: This incorrectly treats exercise liability as a receipt.
Answer: B. For the put writer, net P/L = premium − max(K − S_T, 0). Here 0.90 − max(100 − 98, 0) = −1.10. The writer’s maximum premium income is earned only when the option expires without an exercise liability. Collecting premium is not evidence that the position is safe. Remember: Writer profit reverses the buyer’s payoff and includes the premium received.
Hint, shown before you answer in practice mode: Common mistake: Treating premium received as profit before accounting for the exercise obligation.
IV-066mediumnumerical
Q7A bond-price call has delta +0.60. The bond price rises by 0.20. Holding other inputs constant and using only the delta approximation, what premium change is expected?
Option A. An increase of 0.60
Why it is wrong: Delta is a sensitivity, not the change independent of underlying movement.
Option B. An increase of 0.12 — Correct answer
Option C. An increase of 0.33
Why it is wrong: Dividing price movement by delta is not the delta approximation.
Option D. A decrease of 0.12
Why it is wrong: A positive call delta responds positively to a higher underlying price.
Answer: B. Locally, Δoption value ≈ delta × Δunderlying price. The expected change is +0.60 × 0.20 = +0.12 per quoted unit. Delta itself can change as the market moves, and changes in volatility, time and other inputs can also affect the actual premium. Remember: Delta is a local slope, not a fixed lifetime hedge ratio.
Hint, shown before you answer in practice mode: Common mistake: Treating a first-order estimate as an exact repricing for any market move.
IV-067mediumnumerical
Q8A call’s delta is 0.45 and gamma is 0.08 per one-unit change in underlying bond price. If the bond price rises by 0.50, what is the approximate new delta, using constant gamma?
Option A. 0.225
Why it is wrong: This multiplies the initial delta by the price move instead of updating it using gamma.
Option B. 0.49 — Correct answer
Option C. 0.41
Why it is wrong: This reverses the positive-gamma response to a higher underlying.
Option D. 0.53
Why it is wrong: This applies gamma to a full one-unit move rather than the stated half-unit.
Answer: B. Gamma measures the local change in delta for a change in the underlying. New delta ≈ 0.45 + 0.08 × 0.50 = 0.49. This is another local approximation: gamma need not remain constant over a large move, so a position hedged at the original delta can require rebalancing. Remember: Gamma explains why a delta-neutral option position need not stay delta-neutral.
Hint, shown before you answer in practice mode: Common mistake: Using gamma as a direct premium change rather than a change in delta.
IV-068hardnumerical
Q9An option has vega 0.12 per one percentage-point change in implied volatility. If implied volatility rises from 10% to 12%, what is the vega-only premium change?
Option A. An increase of 2.40
Why it is wrong: This treats the change as twenty percentage points.
Option B. A decrease of 0.24
Why it is wrong: Positive vega increases value when implied volatility rises.
Option C. An increase of 0.24 — Correct answer
Option D. An increase of 0.0024
Why it is wrong: This inserts a decimal 0.02 despite vega being quoted per percentage point.
Answer: C. The volatility change is 12% − 10% = 2 percentage points. With vega quoted per point, the estimated premium change is 0.12 × 2 = 0.24. The wording of vega’s unit matters. Multiplying by 0.02 would understate the result by a factor of 100. Remember: Always inspect whether volatility sensitivities use decimal volatility or percentage points.
Hint, shown before you answer in practice mode: Common mistake: Confusing a two-percentage-point increase with a 2% relative change.
IV-069mediumnumerical
Q10A long bond option’s theta is quoted as −0.03 premium units for each calendar day elapsed. With all other inputs unchanged and constant theta, what is the three-day estimated premium change?
Option A. −0.03
Why it is wrong: This includes only one of the three elapsed days.
Option B. +0.09
Why it is wrong: This reverses the explicitly given theta sign.
Option C. −0.09 — Correct answer
Option D. −0.01
Why it is wrong: This divides by days instead of accumulating the change.
Answer: C. The question defines theta as value change per day elapsed, so Δpremium ≈ −0.03 × 3 = −0.09. Some texts use different mathematical time variables, which can reverse a derivative’s displayed sign. The explicit convention here governs. Actual theta changes as expiry approaches, so the estimate is local. Remember: Time-decay calculations require a stated sign and day convention.
Hint, shown before you answer in practice mode: Common mistake: Assuming every text defines theta with the same time variable.
IV-070mediumnumerical
Q11An analyst solves an option-pricing model for the volatility input that reproduces the observed option premium. What is being estimated?
Option A. Historical volatility alone
Why it is wrong: Historical volatility is estimated from realised past observations, not solved from today’s option price.
Option B. Implied volatility — Correct answer
Option C. A guaranteed future realised volatility
Why it is wrong: Implied volatility is a price-related model input, not certainty about future outcomes.
Option D. The bond’s contractual coupon rate
Why it is wrong: The coupon is a contract term, not the unknown fitted from the option premium.
Answer: B. Implied volatility is inferred by matching a model to the observed premium while holding its other inputs specified. Historical volatility instead summarises past variation. Differences between them can reflect expectations, risk pricing and model assumptions. A fitted implied volatility is not a guaranteed realised path. Remember: Identify whether volatility is measured from returns or inferred from option prices.
Hint, shown before you answer in practice mode: Common mistake: Treating a volatility figure taken from option prices as a direct observation of the future.
IV-071mediumconceptual
Q12In a one-period model, a bond price is 100 and ends at either 110 or 90. A call has strike 100. The risk-free growth factor is 1.02 and there are no intervening payments. What is the no-arbitrage call value?
Option A. 5.00
Why it is wrong: This takes a simple equal-probability average and omits appropriate risk-neutral discounting.
Option B. 5.88 — Correct answer
Option C. 6.00
Why it is wrong: This is the risk-neutral expected terminal payoff before discounting.
Option D. 10.00
Why it is wrong: This prices the option as though only the up state can occur.
Answer: B. The replicating risk-neutral probability is q = (100×1.02 − 90)/(110 − 90) = 0.60. Terminal call payoffs are 10 and 0, so current value = [0.60×10 + 0.40×0]/1.02 = 5.88235. The probability is a pricing weight, not an asserted real-world likelihood of the up move. Remember: Risk-neutral valuation discounts a replicating expected payoff, not a subjective forecast.
Hint, shown before you answer in practice mode: Common mistake: Using a 50–50 probability simply because the model has two states.
IV-072hardnumerical
Q13For European options on a bond with no coupon before option expiry, the bond price is 100, present value of strike is 97 and call premium is 5. Assuming frictionless put–call parity, the matching put premium is:
Option A. 2 — Correct answer
Option B. 5
Why it is wrong: Equal call and put premiums would require S = PV(K), which is not given.
Option C. 8
Why it is wrong: This adds the spot-minus-discounted-strike difference instead of subtracting it from the call.
Option D. 3
Why it is wrong: This is C − P, not the put premium.
Answer: A. For the stated no-interim-income European setting, C + PV(K) = P + S. Therefore P = C + PV(K) − S = 5 + 97 − 100 = 2. A coupon during the option’s life requires an income adjustment, so the no-coupon assumption is essential. Remember: Use a parity formula consistent with exercise style and interim cash flows.
Hint, shown before you answer in practice mode: Common mistake: Applying a no-income parity formula to a coupon-paying period without adjustment.
IV-073hardnumerical
Q14A non-coupon-paying bond over the option horizon has price 104. The present value of a European call’s strike is 100. Under frictionless no-arbitrage assumptions, which is the call’s lower bound?
Option A. 0 regardless of the spot/strike relationship
Why it is wrong: Non-negativity alone is too weak when S exceeds discounted strike.
Option B. 4 — Correct answer
Option C. 104
Why it is wrong: This is the underlying value, not the call’s minimum value.
Option D. 100
Why it is wrong: This confuses the discounted exercise amount with the option’s lower bound.
Answer: B. A call plus enough risk-free cash to pay the strike cannot be worth less than the underlying in the stated no-income setting. Hence C ≥ S − PV(K), together with C ≥ 0. The lower bound is 4. It is not necessarily the actual premium because optionality may add value. Remember: A no-arbitrage bound is a constraint, not a complete pricing model.
Hint, shown before you answer in practice mode: Common mistake: Reporting the lower bound as the exact option premium.
IV-074hardnumerical
Q15A bond price rises modestly, yet a long call premium falls. Which explanation is consistent with option valuation?
Option A. The call automatically turns into a put once the bond’s price rises by any amount
Why it is wrong: Contract type does not change with market direction.
Option B. A call must have a negative delta whenever its premium falls on a day the bond rises
Why it is wrong: Observed total price change does not by itself identify partial sensitivity.
Option C. A large enough fall in implied volatility or time value outweighs the positive delta effect — Correct answer
Option D. The result is impossible, because an option’s premium depends only on the bond’s spot price
Why it is wrong: Volatility, time and other valuation inputs also affect the premium.
Answer: C. Delta describes the effect of an underlying move with other inputs held constant. In actual trading, time passes and implied volatility can fall. Their negative effects may exceed the benefit from a small bond-price increase. This is especially important when an option is bought at an elevated implied volatility. Remember: Do not infer a Greek from total price movement while ignoring other changing inputs.
Hint, shown before you answer in practice mode: Common mistake: Assuming a correct directional view guarantees a profitable option purchase.
IV-075mediumconceptual
Q16One bond option covers 2,000 units of ₹100 face value. Its premium is 0.35 per unit. What is the premium outlay for four contracts, excluding charges?
Option A. ₹2,800 — Correct answer
Option B. ₹700
Why it is wrong: This is the premium for one contract only.
Option C. ₹28,000
Why it is wrong: This overstates the premium multiplier by ten.
Option D. ₹8,00,000
Why it is wrong: This is the total face notional, not the premium cost.
Answer: A. Premium is quoted per unit, so multiply by the contract’s unit multiplier and quantity: 0.35 × 2,000 × 4 = ₹2,800. The corresponding face notional is ₹8,00,000, a different measure. Buying the option does not require paying full face notional simply because that amount determines exposure. Remember: Quote units determine the option cash premium.
Hint, shown before you answer in practice mode: Common mistake: Confusing option premium, face notional and exercise cash flow.
IV-076mediumnumerical
Q17A purchased cash-settled call expires out of the money. It was held without any separate leveraged position, and all premium was paid upfront. Ignoring charges, what is the buyer’s loss on the option itself?
Option A. The entire face notional of the bond
Why it is wrong: A long option’s notional does not become payable merely because it expires worthless.
Option B. Zero because the option was not exercised
Why it is wrong: Not exercising avoids further exercise economics but does not refund the premium.
Option C. An additional amount equal to the strike on top of premium
Why it is wrong: An out-of-the-money cash-settled call creates no positive exercise payment obligation for its buyer.
Option D. The premium paid — Correct answer
Answer: D. For a fully paid long call, net expiry P/L is max(S_T − K, 0) minus premium. If the option expires out of the money, the first term is zero, so the loss is the premium. This limited-loss statement applies to the option itself, not to an unrelated financed portfolio or an option writer. Remember: Limited loss still means the entire premium can be lost.
Hint, shown before you answer in practice mode: Common mistake: Mistaking no exercise for a premium refund.
IV-077mediumconceptual
Q18A company needs protection for an unusual notional amount and an exact payment date unavailable in listed bond options. What is the central exchange-versus-OTC trade-off?
Option A. A custom OTC option may match the terms better, but adds counterparty and documentation issues — Correct answer
Option B. Every OTC option is automatically safer and more liquid than a listed exchange option
Why it is wrong: Customisation alone does not guarantee liquidity or credit protection.
Option C. A listed option can never be used for any hedge that does not match the exposure exactly
Why it is wrong: An imperfect listed hedge can still reduce risk, subject to mismatch analysis.
Option D. Listed options can always have their terms changed by one buyer to suit the company’s own dates
Why it is wrong: Exchange contract terms are standardised rather than individually rewritten.
Answer: A. Exchange products pool trading in standard terms. Bespoke OTC products can align specific dates, amounts and references. The better contractual match must be weighed against pricing, liquidity, credit support and documentation. The question is about a trade-off, not a universal claim that either market is always superior. Remember: Compare economic fit and implementation risks together.
Hint, shown before you answer in practice mode: Common mistake: Choosing an OTC or exchange label without analysing the actual exposure match.
IV-078mediumconceptual
Q19For plain vanilla bond-price options under conventional smooth pricing models, which position normally has positive gamma?
Option A. A purchased call or a purchased put — Correct answer
Option B. A long futures position solely because its notional is large
Why it is wrong: A linear futures payoff does not acquire option gamma from its size.
Option C. A written call and a written put
Why it is wrong: Writing these options reverses the long position’s positive gamma.
Option D. Only a purchased call, never a purchased put
Why it is wrong: A long put also has positive convexity with respect to underlying price.
Answer: A. Gamma measures how delta changes as the underlying moves. Long vanilla calls and puts are convex in underlying price, so their gamma is normally positive. Their delta signs differ, but gamma signs do not. Shorting the options reverses gamma and creates an exposure that can become more adverse as the underlying moves. Remember: Delta direction and gamma sign describe different properties of an option.
Hint, shown before you answer in practice mode: Common mistake: Assuming a negative-delta long put must also have negative gamma.
IV-079mediumconceptual
Q20CASE O: A European bond-price put has strike 101, premium 0.80 and multiplier 2,000. At expiry the settlement reference is 99.50. What is the gross exercise receipt for the buyer?
Option A. ₹3,000 — Correct answer
Option B. ₹1,400
Why it is wrong: This is net profit after premium, not the gross exercise receipt requested.
Option C. ₹1,600
Why it is wrong: This is the premium outlay.
Option D. Zero
Why it is wrong: The settlement price is below strike, so the put is in the money.
Answer: A. Put exercise value is max(K − S_T, 0) × multiplier. Here it is 1.50 × 2,000 = ₹3,000. The ₹1,600 premium was a separate acquisition cost, so the net profit would be ₹1,400, but that is not the measure requested. This distinction is important when reconciling settlement receipts and trade P/L. Remember: Label exercise cash flow and net P/L separately.
Hint, shown before you answer in practice mode: Common mistake: Subtracting premium when the question asks specifically for gross settlement.
IV-080mediumnumerical
Q21CASE O: A European bond-price put has strike 101, premium 0.80 and multiplier 2,000. Ignoring costs and financing, at which expiry bond price does the buyer break even?
Option A. 101.00
Why it is wrong: At the strike the put has no exercise value, leaving the premium lost.
Option B. 101.80
Why it is wrong: Adding premium gives a call-style break-even, not the put’s.
Option C. 100.20 — Correct answer
Option D. 99.50
Why it is wrong: That expiry price produces a positive profit rather than break-even.
Answer: C. For an in-the-money put, net P/L per unit = K − S_T − premium. Set this to zero: S_T = 101 − 0.80 = 100.20. The multiplier scales both premium and payoff equally, so it does not change the break-even underlying price. Remember: A put buyer needs the underlying below strike minus premium to profit at expiry.
Hint, shown before you answer in practice mode: Common mistake: Using the strike itself as the premium-inclusive break-even.
IV-081mediumnumerical
Q22CASE O2: A desk owns 20 bond puts. Each contract covers 2,000 units and each put’s delta is −0.35 per unit. What is the portfolio delta expressed in underlying bond units?
Option A. +14,000 underlying units
Why it is wrong: This reverses the sign of the long put’s delta.
Option B. −7 underlying units
Why it is wrong: This multiplies delta by contracts but omits the 2,000-unit contract size.
Option C. −14,000 underlying units — Correct answer
Option D. −40,000 underlying units
Why it is wrong: This assumes delta is −1 for every put.
Answer: C. Aggregate delta = contracts × units per contract × option delta = 20 × 2,000 × (−0.35) = −14,000 underlying units. This is a local sensitivity equivalent, not legal ownership of negative 14,000 bonds. If bond-price delta changes, the equivalent exposure changes too. Remember: Aggregate option delta using both contract count and multiplier.
Hint, shown before you answer in practice mode: Common mistake: Reporting contract count as though each contract represented only one underlying unit.
IV-082hardnumerical
Exchange Traded Interest Rate Options: common questions
How many practice questions are there on Exchange Traded Interest Rate Options?
22 questions, all written out on this page with the correct answer and why each other option is wrong. This unit is one of the 10 practice topics for NISM Series IV, which has 150 questions in total.
Are these real NISM Series IV questions on Exchange Traded Interest Rate Options?
No. LearnNifty wrote every question from NISM's public syllabus. NISM does not publish its question bank, so nobody can offer you the real paper. Use these questions to check that an idea has gone in. Use the official NISM workbook to see what is examined.
Does negative marking apply to NISM Series IV?
Yes. NISM takes off 25% of a question's marks for a wrong answer. On a 1-mark question that is 0.25 marks off. A blank question earns nothing and loses nothing, so a wrong guess costs marks on this paper. Timed practice here uses the same rule.
Are these practice questions kept up to date?
Each question is written against the rules printed on this page, last checked on 5 September 2026. A Budget or a SEBI circular can change a rate, a lot size or an expiry day. If one of those rules changes before your exam, treat the questions that use it as out of date. Then check NISM's current workbook.
Strategies Using Exchange Traded Interest Rate Futures and Options
24 questions on Strategies Using Exchange Traded Interest Rate Futures and Options. Its quiz opens on that unit.
Open Strategies Using Exchange Traded Interest Rate Futures and Options